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Diversified industrial group KAP posted robust interim results for the half-year to December 31, 2015, during which the com- pany improved its margins and faced down the constraining macroeconomic conditions.

The company increased revenue by 3%, operating profit by 11% and headline earnings per share by 15%. Over a four-year timeframe, it achieved 4% compound annual growth of revenue, 11% operating profit growth and headline earnings per share growth of 16% since 2013, says KAP CEO Gary Chaplin.

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The revenue growth and margin growth are a result of KAP’s strategy of targeting high-return activities to improve the quality of earnings from its group of companies and sustaining earnings through diversity in the business. It also increased cash generated from operations by 11%.

KAP’s revenue is derived from its logistics (50%) and its industrial subsidiaries (50%). Its logistics division managed to improve its operating profit by 10%, despite revenue declining by 1%, and the industrial division increased its revenue by 8% and operating profit by 22%.

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The logistics division improved its margin from 10.5% to 11.7%, compared with last year’s interim results, while the industrial division improved its margin from 8.9% to 10.1%. The logistics division’s revenue comprises passenger transport (35%) and contractual logistics (65%). The latter improved its operating profit by 11%, despite revenues declining by 2%, while passenger transport improved its operating profit by 6%, with revenues increasing by 1%.

The industrial division achieved robust organic growth and improved its margin, owing to the implementation of KAP’s strategy of sustaining margins through specialisation, focusing on strong cash-flow generation and leveraging its African base, says Chaplin.

All the industrial companies of the group grew revenue and operating profit during the interim reporting period, while the automotive components, integrated timber and integrated bedding companies increased operating profit strongly over the period.

Industrial chemicals companies were impacted on by exchange rate and commodity price volatility. However, this was well managed and the companies protected their margins, resulting in revenue increasing by 8% and operating profit by 3%.

KAP CFO John Haveman notes the continuing decline of the group’s debt ratios, with net debt to equity declining from 48% to 38% and the group being well capitalised to repay interest-bearing debt maturing in December 2016 and December 2017.

Chaplin highlights that the outlook for KAP is good and the subdued macroeconomic environment lends itself to the company’s continuing focus on strategic drivers and market share growth.

“The lower fuel price will enhance margins in passenger transport and reduce logistics costs, which will have a positive operational impact on the diversified industrial segment. The weak rand provides a more competitive position against imports, and the logistics division’s currency exposure in six African countries will derive benefit from a weak rand,” he says.

The contractual logistics division’s sustainability of earnings is bolstered by the long-term contractual nature of its operations; KAP has renewed several significant contracts and achieved contract extensions for its agriculture, foods and infrastructure services.

Establishing a single Unitrans logistics business has created expansion opportunities in the rest of Africa, while the reduced cost structure and efficiencies of the business position it competitively in the current economic climate. The passenger transport operations also represent a significant opportunity for expansion into the rest of Africa, says Chaplin.